In brief
- The Central Bank of Kenya (CBK) Monetary Policy Committee delivered a surprise 75bps rate cut in the Central Bank Rate (CBR) to 10.0% in its April 2025 meeting. The rate cut was the fifth successive rate slash in the apex bank’s current easing cycle.
- In addition to the cut to the policy rate, the MPC also narrowed the interbank corridor from ±150bps to ±75bps around the CBR. The current width of the corridor has been in place since June 2024 having been narrowed from ±250bps that was in effect from August 2023 with the implementation of the monetary policy framework. Furthermore, the discount window margin above the CBR was lowered from 300bps to 75bps.
- We applaud the monetary authorities’ efforts to finetune the transmission mechanism. Liquidity mop-ups by the central bank have been salient this year, even with the lowering in the Cash Reserve Ratio (CRR) by 100bps to 3.25% in the February 2025 MPC meeting.
- The external balance is in slightly better shape following revisions in data treatment of cross-border transactions and international trade in services by the Kenya National Bureau of Statistics (KNBS). Following the revision in the data, the current account deficit-to-GDP was revised from 3.7% to 2.8% in 2024 and is expected to steady at 2.8% in the current year.
- The CBK expects that the successor IMF programme, with discussions expected to start during the upcoming IMF/World Bank Spring meetings, will be a financed instrument and accessed under normal access. From our calculation, this implies an IMF funded programme capped at SDR 370.5mn or USD 496.2mn and at par with the average disbursement of SDR 369.4mn in the last four reviews under the previous programme.
- Given the low financing to be realized under normal access and the high hurdle in meeting all the 4 criteria under exceptional access, we see no immediate successor programme, at least in the 18-month horizon, as the authorities build the necessary IMF financing headroom.
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